Democrats to roll back proposal for banks to report account balances to IRS

WASHINGTON — Senate Democrats on Tuesday, bowing to an aggressive banking industry lobbying campaign and Republican pushback, scaled back a Biden administration plan for the Internal Revenue Service to try to crack down on tax evasion.

The new proposal, which would help pay for the sweeping social policy and climate change bill that includes it, narrows the scope of information banks would have to provide to the IRS about customer accounts. Under the revised plan, which is backed by the Biden administration, banks would be required to provide data on accounts only with total annual deposits or withdrawals worth more than $10,000, instead of the threshold. of $600 originally proposed. The reporting requirement would not apply to payroll deposits of employees or recipients of federal programs such as Social Security.

The plan was tightened after a constant lobbying campaign by the banks and a barrage of criticism from Republicans, who argued that the administration’s desire to beef up the IRS to narrow the $7 trillion “tax gap” of dollars amounted to an invasion of privacy and government overreach.

Senators Ron Wyden of Oregon, Chairman of the Finance Committee, and Elizabeth Warren, Democrat of Massachusetts, accused critics of lying to protect wealthy tax cheats. But their decision to withdraw the original proposal showed how legislation containing measures Democrats thought only weeks ago would be politically unassailable — from cracking down on wealthy tax cheats to allowing the government to negotiate lower prices for drugs – could succumb to challenges from well-funded adversaries. With no votes to spare in an evenly divided Senate, opponents need only change one vote to condemn a provision of the social policy bill.

Critics of the proposal incorrectly suggested that the IRS would track information about individual transactions. The administration said the IRS would not monitor specific customer transactions, but would instead use account information to spot discrepancies between it and what individuals reported on their tax returns.

“Banks and their wealthy clients are outright lying, saying they would see individual transactions, and Republicans support them,” Ms. Warren said.

The Biden administration insists that audit rates for those earning less than $400,000 would not increase and that the program was focused on collecting unpaid taxes from the wealthy.

But Republicans, who have expressed distrust of the IRS for years, have continued to criticize the proposal as an invasion of privacy. This is familiar ground. In the 1990s, Republicans orchestrated well-attended hearings into IRS abuses that portrayed the agency as out of control. In 2013, Republicans accused the IRS of targeting conservative groups, though political targeting crossed party lines.

“Whether it’s $600 or $10,000, under this proposal, the intimate financial details of everyone in this room – at a minimum, every American who has a job – will be handed over daily to the IRS,” said Senator John Kennedy. Republican of Louisiana told reporters despite the proposal’s exemption from payroll deposits. “What could go wrong?”

Senator Kevin Cramer, Republican of North Dakota, somberly warned, “Marx is at the door.”

Mr Wyden called the Republican charges a ‘flat-out lie’ enacted by lawmakers at the behest of ‘donors and allies’ who ‘want nothing more than a crippled taxman unable to continue their cheating’. Under the revised plan, instead of daily transaction reports, banks would send “two numbers once a year”, Mr Wyden said, “the total amount going into an account and the total amount going out”.

But the campaign has taken its toll. The Treasury Department said the Biden administration would support the narrower proposal because the IRS already has information on American workers and retirees. Although this would give the agency visibility into far fewer bank accounts, the Treasury says in a fact sheet Tuesday that “only those who accumulate other forms of income in an opaque way are part of the declaration regime”.

“Today’s new proposal reflects the administration’s strong belief that we should focus on those at the top of the income scale who are not paying the taxes they owe, while protecting American workers by setting the bank account threshold at $10,000 and granting an exemption for employees such as teachers and firefighters. Treasury Secretary Janet L. Yellen said in a statement.

“The main reason Republicans have hung on to this issue as the one to lie about every day is because they know their tax agenda is a political loser,” Wyden said. “The American people overwhelmingly want to make sure megacorporations and billionaires pay their fair share, so Republicans have largely given up on their tired fallout arguments.”

Banks already submit tax forms to the IRS regarding interest earned on accounts receivable. But the new proposal would require them to share information about account balances so the IRS can see if there are significant discrepancies between the income reported by individuals and businesses and what they have in the bank. The IRS could investigate the deficiencies to see if these taxpayers are evading their obligations.

The Treasury Department has estimated that its initial proposal to require banks to report account balances, along with plans to bolster law enforcement staff at the IRS, could raise $700 billion. dollars over a decade.

In a letter to House Democrats last month, Yellen urged lawmakers not to water down the disclosure proposal. Originally, this part of the plan was to bring in $460 billion over a decade. The Treasury Department has estimated that the smaller plan being considered by Congress could bring in between $200 billion and $250 billion over that period.

The department believes these are conservative estimates and that the “chilling effects” of the policies could still generate $700 billion in additional tax revenue over the next decade.

Republicans continued to raise the possibility that any new reporting rules expand to target low-income taxpayers. Sen. Michael D. Crapo of Idaho, the top Republican on the Finance Committee, pointed to an analysis by the nonpartisan Joint Congressional Taxation Committee that estimated that half of unpaid taxes came from taxpayers. earning less than $50,000 a year.

Taxpayers earning at least $500,000 are hiding only 4 to 9 percent of the money that could be recouped through a tax evasion crackdown, Crapo said.

Mr Wyden said the analysis was dated and crippled by the committee’s inability to track the amount owed to the IRS, especially by those using complex tax schemes like multi-tier partnerships and multiple banking transactions. , which the new reporting requirements would target.

He cited testimony on Tuesday from Assistant Treasury Secretary Wally Adeyemo, who estimated that the top 1% of taxpayers will pay no more than $2 trillion in taxes they owe over the next 10 years. .